Life Gets Better, But Only for Some

ReutersVladimir Putin and Dmitry Medvedev unbuttoning their jackets as they attend a sports festival in Penza in January.

Editor's note: This article, the sixth in a series about President Vladimir Putin's legacy, examines Russians' standard of living.

The public protests shook the president and nearly toppled a government.

But the thousands of angry demonstrators that flooded onto the streets of towns and cities around the country in January 2005 were not opposition activists protesting the rollback of democracy or Kremlin policy in the Caucasus.

The protesters bringing traffic to a halt and demanding that then-Prime Minister Mikhail Fradkov and his entire Cabinet be tossed out were the country's most economically vulnerable -- pensioners, the disabled, veterans -- enraged by the bread-and-butter issue of reform to the system of state subsidies for certain goods and services.

"When the pensioners hit the streets in January 2005 in Moscow and all around the country, that really scared the government," said Yevgeny Gartung, State Duma deputy from the Just Russia party and former head of the now-defunct Pensioners Party.

The tumultuous scenes highlighted not just popular discontent at the replacement of the subsidized benefits by direct cash payments, but the government's vulnerability when attempting social reforms in general.

Over the last eight years of economic boom, caused largely by record oil prices, the sustaining narrative of Vladimir Putin's tenure became a simple one: After the instability of the 1990s, life was getting better.

There is little doubt that some of the new wealth has filtered down. Official indicators show that the proportion of the population living in poverty has dropped; wages, consumption and living standards have risen; and a small middle class has emerged.

But under Putin, critics argue, macroeconomic stability has also undercut any impetus for reform. This has meant that the health care and education systems have been left in dire straits, that pensions remain insufficient, that a good part of the rise in incomes is eaten up by inflation and that the inequalities that arose in the 1990s have only grown greater. Any improvement, they say, has come in spite of, rather than because of, Putin's policies.

Putin himself says that stability, rather than reform, has been his main achievement.

In his recent legacy speech to the State Council, Putin said the conditions are now in place to allow Russians to expect real improvements, with improving living standards taking the primary place in his development plan through 2020.

"Russia will become the best place to live," Putin said. "That's an absolute national priority."

To this end, Putin's anointed successor, Dmitry Medvedev, whose main responsibility as first deputy prime minister was to usher in the national projects in health care, housing, education and agriculture, has made social-welfare issues central to his election platform.

"Today these are the sorest points in our society -- pensioners' incomes, the health care system, the education system and housing," A Just Russia's Gartung said.

No Worse, No Better

The survey could have been published in the mid-1990s.

A Levada Center poll released in January listed rising prices, poverty, the rich-poor divide and lack of access to medical treatment as the four biggest concerns for average Russians.

Although average incomes have risen by more than 50 percent over the last four years in nominal terms, the impact has been significantly blunted by rising prices for essential items. Official inflation figures have been in the range of 10 percent in recent years, but many economists say the cost of staple products has been at least twice as much.

"In real terms, there has been practically no change in the quality of life for any of the sections of society we survey," said Natalya Tikhonova, head of the social policy department at the Higher School of Economics. "The situation has improved insofar as it has stopped getting worse after many years of deterioration."

Since Putin's public declaration of war on poverty in 2004, the number of people living under the official subsistence level has plummeted. Even if the official figure of 12 percent at present is a little rosier than the reality, it is still way down from the 1-in-3 figure of a decade ago.

But while most are now are getting by safely, others have never had it so good.

During Putin's tenure, income disparity both between rich and poor and among the regions has grown. According to official figures, the top 10 percent of the population takes home about 31 percent of total earnings and earns 15 times more than the bottom 10 percent. Independent analysts put this figure at closer to 30.

"The more money there has been in the country, the worse our quality of life, life expectancy and education levels have become relative to other countries," said Oleg Smolin, a Communist State Duma deputy. "The economy does not work for the people, but the other way around."

And the gap is not just social but geographical.

"Of course the difference between living standards in Moscow and the regions is growing," said Gartung, who represented a Chelyabinsk district in the last Duma. "As a rule, prices in the regions are growing more quickly and wages are growing more slowly."

In 2006, the gross domestic product per capita for Moscow was almost 30 times that of Ingushetia, statistics from the National Institute for Living Standards show.

"If Moscow is currently on the same level as the Czech Republic, St. Petersburg is on the level of the Baltic States, and somewhere like Tuva is on par with Mongolia," said Smolin, who comes from the Siberian city of Omsk.

And unless something is done to prevent the gap from growing further, the social situation could become volatile.

"Society has undoubtedly become more stable, but the danger of instability is growing again because of the gap between rich and poor," said A Just Russia's Gartung.

While Putin's increasingly centralized -- some prefer the word "authoritarian" -- political system has created an atmosphere of stability, it might have the opposite effect in the long run.

While in other developed countries multiparty political systems and civil society work to promote the interests of different sections of society, in Russia these social mechanisms do not work, Tikhonova said.

"One of the questions is whether Russians have sacrificed democracy at too low a price," Sergei Guriyev, rector of the New Economic School said. "But I think that people tend to underestimate the intensity of the negative economic shock in the 1990s."

Guriyev said one hopeful sign was the evidence of a growing middle class, however nascent at present.

"You look at characteristics such as mobile phone sales or real estate prices and they all demonstrate that the middle class is growing everywhere -- not just in Moscow," Guriyev said.

Although estimates of the size of the middle class now range from 10 to 30 percent of the population, this still remains far below the two-thirds level common in Western Europe.

Part of the problem, says Smolin, who serves on the Duma's Education and Science Committee, is that many teachers, doctors and academics still fall outside of the middle class.

Smolin said one friend, an award-winning high school teacher in Omsk, earns just over 3,000 rubles, or about $125, per month while another who works as a principal and teacher earns 6,400 rubles per month.

Reform Stalled

One of the main problems, critics argue, is that, despite the centralization of power and the subservience of the parliament, the process of real reform has stumbled. Much-needed structural changes to the education, pension and health care systems have been held captive to vested interests and corruption, while poor legislation and a lack of public discourse have turned good ideas into catastrophes.

Putin's first term was characterized by legislative caution, with macroeconomic stability rather than change the priority, said Vyacheslav Bobkov, director of the National Center for Living Standards.

Much of the legislation passed in the first four years, like the introduction of the 13 percent flat income tax, was leftover from the Yeltsin period, along with many of the personnel, Bobkov said.

"Putin and the administration did not know that oil prices would get, and stay, this high," the New Economic School's Guriyev said. "Only in 2002 and 2003 did they begin to believe that they would have money to spend on new things."

So, after his public admission of shame in 2003 of the poverty in which many Russians lived, Putin looked ready for more ambitious reforms at the start of his second term.

Emboldened, perhaps, by high popularity ratings and a tighter grip on power -- and with a new team in place, including Mikhail Zurabov as health and social development minister and Andrei Fursenko as education minister -- Putin turned to housing, pensions and benefits.

Monetization

The switch from a long-standing system of free or heavily subsidized goods and services -- including medicine, public transport and utilities -- highlighted the difficulties involved in pursuing social reforms during Putin's second term. The program, generally referred to as "monetization," prompted the wave of protests at the outset of 2005.

"Monetization was the biggest mistake," Gartung said. "It was correct in theory, but in practice there were lots of mistakes."

Many regional governments, on which the burden of many of the payments was to fall, found themselves unprepared and short of funds to deal with the new responsibilities. Putin, meanwhile, was forced to publicly upbraid four of his ministers, including two of the highest-profile economic liberals -- Finance Minister Alexei Kudrin and Economic and Trade Development Minister German Gref. Reform after that became more cautious.

"The government realized that these reforms were very risky, so whenever you want to change something you have to throw a lot of money at it," Guriyev said. "If it's a government that has a lot of money, it's not a bad idea."

But just over a year later -- in March 2006 -- protesters were out on the streets across the country again to protest reforms that saw household utilities bills shoot up.

Zurabov, the minister most associated with the reforms, quickly became the lightning rod for criticism. After a reform to the state-subsidized drug program left thousands short of medicine in 2007, Zurabov took the fall, being shown the door when Mikhail Fradkov's government was dismissed last September.

In the meantime, a sort of "pay-and-pray" policy of throwing money at problems without addressing the root causes has come into play. Highly publicized and politicized lump payments have been doled out to pensioners and public-sector employees like teachers and doctors in the run-up to recent elections.

"So far, the government is making the minimum payments necessary to buy the loyalty of the pensioners," Gartung said.

In December 2007, the average basic state pension was 3,309 rubles, or about $135, per month, an increase of more than 16 percent from the beginning of 2006.

And emergency measures introduced before the Duma elections last year to freeze prices artificially on basic goods were just another short-term attempt at dealing with complex issues.

"It is completely political," Gartung said. "This has nothing to do with economics."

The Projects

In his state of the nation address in 2005, Putin started what would become the defining social initiatives of his second term -- the national projects.

Supporters of the projects say they have already addressed structural issues and made a concrete difference in the areas of education, health care, housing and agriculture over the last two-plus years.

"The most important element is that, for the first time, there is now a strategy," said Alexandra Ochirova, who serves on Medvedev's committee for the national projects and heads the commission for social development in the Public Chamber.

Guriyev agreed, saying improvements, like connecting all Russian schools to the Internet, were proof of progress.

"Even throwing money at education and health care is a good idea because these were previously so underfinanced," said Guriyev, who served on a committee advising the government on the national projects.

But far from a great white hope, others see the projects as a white elephant, aimed only at generating superficial successes and photo opportunities, and reinforcing traditions of haphazard spending.

Some argue that the projects are so ill-conceived that they have done more harm than good.

"I remember from childhood the story about the man who turned everything he touched to gold," Smolin, the Communist Duma deputy said. "Well, the national projects seem to turn everything they touch into quite a different substance."

With the introduction of the national projects, he said, speculation on real estate sent prices soaring, and life expectancy has actually dropped.

With regard to education, Smolin said that under Putin quality has plummeted, bureaucracy soared and the number of free-of-charge spots fallen.

"Twenty-eight percent of Russians think that the sun revolves around the earth. In other words, they live in a pre-Copernican age," he said. "And 30 percent of Russians think that if you boil radioactive milk, the radiation will disappear."

"These are the dazzling results of our national projects," he said.

In health care, despite some improvements, a bribe-for-treatment system is still prevalent, and the lack of facilities makes receiving proper treatment outside of large cities a lottery.

"We need huge health care reform to meet the challenges," said Kirill Danishevsky, lead consultant at the Open Health Institute, a Moscow-based nongovernmental organization. "You don't solve this just by buying more ambulances."